by Calculated Risk on 10/26/2022 10:52:00 AM

Today, in the Calculated Risk Real Estate Newsletter: New Home Sales Decreased in September; Completed Inventory Increased

Brief excerpt:

The next graph shows the months of supply by stage of construction. “Months of supply” is inventory at each stage, divided by the sales rate.

There are 1.1 months of completed supply (red line). This is about two-thirds of the normal level.

The inventory of new homes under construction is at 6.0 months (blue line). This elevated level of homes under construction is due to supply chain constraints.

And a record 105 thousand homes have not been started - about 2.1 months of supply (grey line) - about double the normal level. Homebuilders are probably waiting to start some homes until they have a firmer grasp on prices and demand.
...
First, as I discussed last month, the Census Bureau overestimates sales, and underestimates inventory when cancellation rates are rising, see: New Home Sales and Cancellations: Net vs Gross Sales. So, take the headline sales number with a large grain of salt - the actual negative impact on the homebuilders is greater than the headline number suggests!
...
There are a large number of homes under construction, and this suggests we will see a sharp increase in completed inventory over the next several months - and that will put pressure on new home prices.

You can subscribe at https://calculatedrisk.substack.com/.

by Calculated Risk on 10/26/2022 10:09:00 AM

The Census Bureau reports New Home Sales in September were at a seasonally adjusted annual rate (SAAR) of 603 thousand.

The previous three months were revised down, combined.

Sales of new single‐family houses in September 2022 were at a seasonally adjusted annual rate of 603,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 10.9 percent below the revised August rate of 677,000 and is 17.6 percent below the September 2021 estimate of 732,000.
emphasis added

Click on graph for larger image.

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

New home sales are below pre-pandemic levels.

The second graph shows New Home Months of Supply.

The months of supply increased in September to 9.2 months from 8.1 months in August.

The all-time record high was 12.1 months of supply in January 2009. The all-time record low was 3.5 months, most recently in October 2020.

This is well above the top of the normal range (about 4 to 6 months of supply is normal).

"The seasonally‐adjusted estimate of new houses for sale at the end of September was 462,000. This represents a supply of 9.2 months at the current sales rate."

The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In September 2022 (red column), 49 thousand new homes were sold (NSA). Last year, 58 thousand homes were sold in September.

The all-time high for September was 99 thousand in 2005, and the all-time low for September was 24 thousand in 2011.

This was slightly above expectations, however sales in the three previous months were revised down, combined. I'll have more later today.

by Calculated Risk on 10/26/2022 07:00:00 AM

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

Mortgage applications decreased 1.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 21, 2022.

... The Refinance Index increased 0.1 percent from the previous week and was 86 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index decreased 3 percent compared with the previous week and was 42 percent lower than the same week one year ago.

“Mortgage rates increased for the 10th consecutive week, with the 30-year fixed rate reaching 7.16 percent, the highest rate since 2001. The ongoing trend of rising mortgage rates continues to depress mortgage application activity, which remained at its slowest pace since 1997,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Refinance applications were ess entially unchanged, but purchase applications declined 2 percent to the slowest pace since 2015 – over 40 percent behind last year’s pace. Despite higher rates and lower overall application activity, there was a slight increase in FHA purchase applications, as FHA rates remained lower than conventional loan rates.”

Added Kan, “MBA’s forecast expects both economic and housing market weakness in 2023 to drive a 3 percent decline in purchase originations, while refinance volume is anticipated to decline by 24 percent.
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The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 7.16 percent from 6.94 percent, with points decreasing to 0.88 from 0.95 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.


The first graph shows the refinance index since 1990.

With higher mortgage rates, the refinance index has declined sharply this year.

The refinance index is at the lowest level since the year 2000.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is down 42% year-over-year unadjusted.

The purchase index is 12% below the pandemic low and at the lowest level since 2015.

Note: Red is a four-week average (blue is weekly).

by Calculated Risk on 10/25/2022 09:01:00 PM

Note: Mortgage rates are from MortgageNewsDaily.com and are for top tier scenarios.

Wednesday:
• At 7:00 AM ET, The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 10:00 AM, New Home Sales for September from the Census Bureau. The consensus is for 590 thousand SAAR, down from 685 thousand in August.

by Calculated Risk on 10/25/2022 04:42:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate in September was 0.67%, down from 0.70% August. Freddie's rate is down year-over-year from 1.46% in September 2021.

Freddie's serious delinquency rate peaked in February 2010 at 4.20% following the housing bubble and peaked at 3.17% in August 2020 during the pandemic.

These are mortgage loans that are "three monthly payments or more past due or in foreclosure".

Click on graph for larger image

Mortgages in forbearance are being counted as delinquent in this monthly report but are not reported to the credit bureaus.

The serious delinquency rate was at 0.60% just prior to the pandemic - almost back to that level.

Note that multi-family delinquencies have been increasing and were at 0.13% in September.

by Calculated Risk on 10/25/2022 02:25:00 PM

Today, in the Real Estate Newsletter: Lawler: Update on the Household “Conundrum”

Excerpt:

This is from housing economist Tom Lawler:

The pandemic wreaked havoc on some of the government surveys designed to measure the number of and characteristics of US households (though there were measurement issues before the pandemic), making it difficult for analysts how much of the extraordinary strength in the housing market during 2021 and early 2022 was related to “demographics” as opposed to behavioral and preference changes.  (Here is the November 2021 piece on this issue).  Nevertheless, it may still be useful to see what these reports are showing.
...
What is striking about the estimated household gain is that it is significantly above – in fact, about double -- what one would have projected if one had assumed that so-called “headship rates” in each age group (the number of householders in an age group divided by the total population of that age group) had remained the same over this period.  Moreover, headship rate increases were concentrated in the 15–34-year-old categories.

If in fact over the 12-month period ending March of this year the number of households increased by almost two million, then household growth significantly outpaced housing production, as total housing completions plus manufactured housing shipments totaled only about 1.44 million.

In terms of household growth, there are several reasons to expect that household growth has slowed sharply since the beginning of this year ...
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If in fact this dynamic shift between household growth and housing production is taking place, then it, combined with (1) the unprecedented increase in housing prices over a 2-year period from mid-2020 to mid-2022, and (2) the unprecedented surge in mortgage rates this year, would suggest that a non-trivial decline in home prices from the middle of this year to at least the middle of next year would be a logical “base case.”  This shift, combined with (1) the unprecedented increase in rents from late 2020 to the middle of this year and (2) the significant increase in rental units coming to market over the next year, suggest not only that rent growth should soon decelerate sharply (in fact, some indicators suggest that it already has), but that an actual decline in rents next year would be a reasonable base case.

There is much more in the article.  You can subscribe at https://calculatedrisk.substack.com/

by Calculated Risk on 10/25/2022 10:02:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Case-Shiller: National House Price Index "Continued to Decelerate" to 13.0% year-over-year increase in August

Excerpt:

Both the Case-Shiller House Price Index (HPI) and the Federal Housing Finance Agency (FHFA) HPI for August were released today. Here is a graph of the month-over-month (MoM) change in the Case-Shiller National Index Seasonally Adjusted (SA).

The Case-Shiller Home Price Indices for “August” is a 3-month average of June, July and August closing prices. June closing prices include some contracts signed in April, so there is a significant lag to this data.

The MoM decrease in Case-Shiller was at -0.86% seasonally adjusted. This was the second consecutive MoM decrease, and the largest MoM since February 2010. Since this includes closings in June and July, this suggests prices fell sharply for August closings.

On a seasonally adjusted basis, prices declined in all of the Case-Shiller cities on a month-to-month basis. The largest monthly declines seasonally adjusted were in San Francisco (-3.7%), Seattle (-2.9%), and San Diego (-2.5%). San Francisco has fallen 8.2% from the peak in May 2022.
...
The August Case-Shiller report is mostly for contracts signed in the April through July period when 30-year mortgage rates were in the low-to-mid 5% range. The September report will mostly be for contracts signed in the May through August period - when rates were also in the low-to-mid 5% range.

The impact from higher rates in September and October will not show up for several more months.

There is much more in the article. You can subscribe at https://calculatedrisk.substack.com/

by Calculated Risk on 10/25/2022 09:12:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for August ("August" is a 3-month average of June, July and August closing prices).

This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the monthly National index.

From S&P: S&P Corelogic Case-Shiller Index Continued to Decelerate in August

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 13.0% annual gain in August, down from 15.6% in the previous month. The 10- City Composite annual increase came in at 12.1%, down from 14.9% in the previous month. The 20- City Composite posted a 13.1% year-over-year gain, down from 16.0% in the previous month.

Miami, Tampa, and Charlotte reported the highest year-over-year gains among the 20 cities in August. Miami led the way with a 28.6% year-over-year price increase, followed by Tampa in second with a 28.0% increase, and Charlotte in third with a 21.3% increase. All 20 cities reported lower price increases in the year ending August 2022 versus the year ending July 2022.
...
Before seasonal adjustment, the U.S. National Index posted a -1.1% month-over-month decrease in August, while the 10-City and 20-City Composites both posted decreases of -1.6%.

After seasonal adjustment, the U.S. National Index posted a month-over-month decrease of -0.9%, and the 10-City and 20-City Composites both posted decreases of -1.3%.

In August, all 20 cities reported declines before and after seasonal adjustments.

“The forceful deceleration in U.S. housing prices that we noted a month ago continued in our report for August 2022,” says Craig J. Lazzara, Managing Director at S&P DJI. “For example, the National Composite Index rose by 13.0% for the 12 months ended in August, down from its 15.6% year-over-year growth in July. The -2.6% difference between those two monthly rates of change is the largest deceleration in the history of the index (with July’s deceleration now ranking as the second largest). We see similar patterns in our 10-City Composite (up 12.1% in August vs. 14.9% in July) and our 20-City Composite (up 13.1% in August vs. 16.0% in July). Further, price gains decelerated in every one of our 20 cities. These data show clearly that the growth rate of housing prices peaked in the spring of 2022 and has been declining ever since.

“Month-over-month comparisons are consistent with these observations. All three composites declined in July, as did prices in every one of our 20 cities. On a month-over-month basis, the biggest declines occurred on the west coast, with San Francisco (-4.3%), Seattle (-3.9%), and San Diego (-2.8%) falling the most.
emphasis added

Click on graph for larger image.

The first graph shows the nominal seasonally adjusted Composite 10, Composite 20 and National indices (the Composite 20 was started in January 2000).

The Composite 10 index is down 1.3% in August (SA).

The Composite 20 index is down 1.3% (SA) in August.

The National index is 64% above the bubble peak (SA), and down 0.9% (SA) in August.  The National index is up 121% from the post-bubble low set in February 2012 (SA).

The second graph shows the year-over-year change in all three indices.

The Composite 10 SA is up 12.1% year-over-year.  The Composite 20 SA is up 13.1% year-over-year.

The National index SA is up 13.0% year-over-year.

Price increases were lower than expectations.  I'll have more later.

by Calculated Risk on 10/24/2022 08:54:00 PM

From Matthew Graham at Mortgage News Daily: A Rare Winning Streak For Rates, But Don't Get Excited

Now here's a rare thing! Mortgage rates managed to move lower, on average, for the 2nd consecutive business day on Monday. That hasn't happened for roughly 3 weeks, and you'd need to go back another 3 weeks to see the previous example. ... [30 year fixed 7.29%]
emphasis added

Tuesday:
• At 9:00 AM ET, S&P/Case-Shiller House Price Index for August.  The consensus is for the Composite 20 index to be up 16.1% year-over-year.

• Also at 9:00 AM, FHFA House Price Index for August. This was originally a GSE only repeat sales, however there is also an expanded index.

• At 10:00 AM, Richmond Fed Survey of Manufacturing Activity for October.

by Calculated Risk on 10/24/2022 01:54:00 PM

From WardsAuto: October U.S. Light-Vehicle Sales Show Signs of Life (pay content).  Brief excerpt:

"The fourth-quarter SAAR is pegged at 14.2 million units, an improvement on Q2’s 13.3 million and Q3’s 13.4 million, but also meaning November-December results will weaken from October, with the primary reason being stiffer economic headwinds expected. Still, inventory will continue rising through the end of November, creating upside to the outlook"

Click on graph for larger image.

This graph shows actual sales from the BEA (Blue), and Wards forecast for October (Red).

The Wards forecast of 14.7 million SAAR, would be up 9% from last month, and up 11% from a year ago (sales weakened in the second half of 2021, due to supply chain issues).

Vehicle sales are usually a transmission mechanism for Federal Open Market Committee (FOMC) policy, far behind housing.  However, this time, vehicle sales have been suppressed by supply chain issues, and sales will probably not be significantly impacted by higher interest rates.